Globally, nearly one-third of companies have experienced an error or problem with their primary bank, according to recent research from Ernst & Young. It’s a figure that suggests there is something else going on behind the explosive growth of alternative small business financing besides high rejection rates and high interest rates encountered by SME lenders at big banks.
Customer experience, it seems, also plays a role in where SMEs go to borrow. More than half of businesses surveyed by EY reported being less than “highly satisfied” with how their bank responded to the issue. Account errors may seem routine or minor to banks, but customers see things differently. Increasingly, businesses are willing to change banks and move their business to non-bank options to find a more service-oriented approach.
A history with a business customer is no longer enough to keep businesses loyal to their banks, it seems.
The “Global Commercial Banking Survey” finds a majority of businesses (51 percent) have switched or may potentially switch banks within the next 12 months. In real numbers, 17 percent of companies have switched their primary bank in the past year and an additional 34 percent have considered switching. Businesses operating in emerging regions are the most likely to have changed or consider changing banks, while those in developed nations are less prone to finding a new finance partner.
Zeroing in on the United States and Canada in particular, the threat to the status quo is more substantial. More than a quarter of U.S. and Canadian businesses surveyed by EY have changed their primary bank over the past year, with an additional 42 percent considering a change within the next 12 months. Despite rising levels of customer dissatisfaction, Canadian companies displayed a higher overall satisfaction level with their primary bank. Albeit not by much, 70 percent of Canadian businesses were overall satisfied, while only 64 percent of businesses worldwide could say the same.
Companies exploring a switch sometimes find moving to another traditional bank isn’t so easy. Rigorous compliance requirements make the process frustrating. Overall, less than half of businesses asked by EY replied they were highly satisfied with their new bank’s onboarding processes. The most developed markets in the Americas, the U.S. and Canada reported the most satisfying transition process, with rates of discomfort highest in Australia and Japan (77 percent), and the portions of the European Union (56 percent). Businesses were clear on the areas where banks need to improve when it comes to onboarding new customers: reducing paper work/documentation (33 percent), reducing the duration of onboarding (22 percent) and improving the accuracy of transitions (33 percent).
Alternative banking options are stepping up to fill the service gap. “While banks are heavily regulated in Canada, non-banks are taking advantage of their lighter regulatory burden to expand their financial service offerings,” Paul Battista, EY’s Canadian Financial Services Advisory leader, said in a statement. In Canada alone, 48 percent of businesses are already using non-banks in some capacity. Fifty-three percent would consider transitioning to one. That’s 20 percent more than American businesses, where only 33 percent of businesses would consider alternative products. Worldwide, current non-bank usage is highest in the emerging Asia-Pacific market—China, India, Indonesia, Malaysia, Thailand. For banks, the competitive landscape is becoming more and more crowded as new alternative players enter the market. From credit-card issuers to insurance companies to peer-to-peer lenders and online marketplaces. Companies in need of financing have more options than ever before.
The importance of customer service and satisfaction when choosing a banking partner shows an argument for alternative finance that’s not been widely covered. Traditional wisdom holds businesses turned to alternative finance in the wake of high rejection rates caused by constricted lending in the years post-recession. Non-banks had a lot to offer businesses during this time of need, including lending when banks wouldn’t, lower interest rates and cutting-edge technology that cut application and wait times. Recent research has shown businesses, especially SMEs, are returning to traditional bank lending as the market has begun to thaw. Banks may be winning back business from alternative lenders for now, but the EY report shows happy customers are loyal customers and right now many banks are missing the mark. In commercial banking, as in other aspects of B2B interaction, it’s time to put the customer in the center.